Many companies today sell to international clients with relative ease, but there is always one challenge that pops up:
Transferring money from one country to another.
Traditionally, international transfers have been a costly affair, with currency exchange fees and charges cutting into profitability.
If you’re regularly doing business overseas, you’re going to need a better solution than a manual international wire transfer.
One such solution is the multicurrency bank account, popular among freelancers, international businesses, and regular travelers alike.
In this article, we’ll be diving deep into multicurrency bank accounts. You’ll learn what they are, the main currencies you can typically hold in them, how they are often used, and the pros and cons involved.
What is a multicurrency bank account?
Multicurrency accounts are actually pretty self-explanatory.
These are a special type of bank that allows you to hold and manage multiple currencies within a single account. That means you can send, receive, and store funds in currencies like USD, EUR, GBP, JPY, and more, without needing separate accounts with separate financial institutions for each currency.
Key features you’ll typically find in a multicurrency bank account include:
- Multiple international currencies
- Automatic currency conversion
- Competitive exchange rates
- Low exchange fees
- Simplified payments
- Unified account management
There are a number of important distinctions between multicurrency accounts and traditional bank accounts. These are the main ones:
- Currencies. Traditional bank accounts only operate in a single currency (e.g. a USD bank account only holds USD). Multicurrency accounts hold many currencies.
- Transaction flexibility. Traditional accounts often require currency conversion and impose unfavorable rates and high fees. Multicurrency accounts are better at handling international transactions and typically offer lower rates than banks.
- FX costs. Traditional accounts typically charge foreign exchange fees on all overseas transactions. A multicurrency account means you’re paying in the local currency, so there is no FX charge involved.
What currencies do multicurrency accounts usually include?
This depends on the institution offering the multicurrency account, as well as the specific currencies you choose to hold.
Most multicurrency account providers offer the following currencies:
- USD (US Dollar)
- EUR (Euro)
- GBP (British Pound)
- JPY (Japanese Yen)
- AUD (Australian Dollar)
- CAD (Canadian Dollar)
- CHF (Swiss Franc)
- NZD (New Zealand Dollar)
- CNY (Chinese Yuan)
- HKD (Hong Kong Dollar)
Beyond that, you’ll typically find a combination of the following currencies available in multicurrency accounts:
- SGD (Singapore Dollar)
- ZAR (South African Rand)
- SEK (Swedish Krona)
- NOK (Norwegian Krone)
- DKK (Danish Krone)
- INR (Indian Rupee)
- MXN (Mexican Peso)
- BRL (Brazilian Real)
- TRY (Turkish Lira)
- RUB (Russian Ruble)
How are multicurrency bank accounts used?
Multicurrency accounts are used in a variety of contexts, though the purpose is always to facilitate international transactions.
Here are the most popular use cases for multicurrency accounts.
1. Businesses with global suppliers and customers
The main reason an SMB would use a multicurrency bank account is to facilitate easier transactions with international customers and suppliers.
A multicurrency account can allow you to make and receive payments in foreign currencies, reducing your overall costs by lowering the fees you incur.
2. Frequent international travelers or expats
Those living permanently or long-term in another country while retaining their banking in their home country are likely to need a multicurrency account to avoid foreign exchange fees.
Similarly, those who travel regularly, such as digital nomads, might wish to use multicurrency bank account for the same reason.
3. Freelancers or contractors with international clients
It's not uncommon for freelancers and contractors to do business with international clients.
This is especially true of freelancers from smaller countries, such as New Zealand, who may find more clients in bigger markets like Europe and the US.
When receiving payments from these clients, a multicurrency bank account can help reduce the fees they are charged, resulting in increased earnings.
4. Ecommerce businesses
Since ecommerce businesses are fundamentally online, it makes sense that they’d want to open a multicurrency bank account to allow customers to pay in their local currency without the vendor having to bear large transaction and exchange fees.
5. Investment and wealth management
For investors who regularly trade in international markets, such as buying or selling foreign stocks and bonds, a multicurrency bank account can be a good way to reduce the fees associated with such trades.
6. Managing payroll for international employees
If, like many businesses today, you’ve got employees or contractors in remote parts of the globe, then using a multicurrency bank account to manage payroll can help you reduce your labor costs and ensure that employees receive their contracted amounts, absent of any extraneous fees.
Pros of multicurrency accounts for businesses
What are the benefits of using a multicurrency bank account? Here are the main ones:
- Reduced FX fees: Multicurrency accounts lower costs by avoiding frequency currency conversions.
- Better cash flow management: Using a multicurrency bank account can simplify managing inflows and outflows in multiple currencies.
- Convenience: It’s easier to hold and manage multiple currencies in one bank account compared to many.
- Currency hedging: A multicurrency account can allow for strategic conversion when rates are favorable.
- Faster international payments. Using a multicurrency bank account speeds up cross-border transactions.
- Global reach. They also expand your reach as a business, allowing you to move into international markets more easily.
Cons of multicurrency accounts
While multicurrency bank accounts do have some important benefits, it's important to note that, like anything, they also come with a couple of drawbacks, such as:
- Account fees. There are still some fees involved, and certain account providers may charge higher maintenance fees than your existing financial institution.
- Limited currency options. Not all accounts support all needed currencies, though most support the majority of the most commonly used ones.
- Currency risk. Holding funds in a foreign currency does create exposure to fluctuations in foreign currency values.
- Availability. Multicurrency bank accounts are modern tools. Very few traditional banks offer them. That means that if you want to open one, you may need to look outside of your current banking provider.
- Regulatory and tax issues. Holding multiple currencies can add complexity to your tax and regulatory compliance requirements.
Streamline financial management
A multicurrency bank account is a powerful tool for reducing costs and improving your ability to interact with international clients.
Couple that with a powerful spend management solution like BILL Spend & Expense, and you’ve got yourself a winning combination for getting on top of cash flow and improving profitability.
FAQ
Who is qualified for a multicurrency account?
This depends on the financial service provider offering the multicurrency accounts and the qualification criteria they have in place.
That said, most individuals and businesses who are involved in international financial transactions can qualify for a multicurrency account,
Who should use a multicurrency account?
Some of the people who benefit most from using a multicurrency bank account include:
- Global businesses that have suppliers and clients across different countries
- Freelancer and contractor with global clients
- Frequent travelers and expats
- International ecommerce businesses
- Investors and import/export companies that regularly deal with foreign currencies
Are there fees tied to a multicurrency account?
Yes, multicurrency accounts do usually charge fees, though, in most cases, the total cost of using a multicurrency bank account for international transactions will be lower than it would be with a traditional bank account.
The typical fees you might incur include:
- Account maintenance fees
- Currency conversion fees
- Transaction fees
- Dormancy fees
- Withdrawal fees
What to look for in a multicurrency account?
When selecting a multicurrency account for business needs, some key features to evaluate include:
- Exchange rate transparent. Look for a provider that offers competitive and transparent rates with no hidden markups.
- Low fees. Prioritize a bank account provider with a low overall fee structure. Consider transaction fees, conversion charges, and account maintenance costs involved.
- Ease of currency conversion. Choose an account that allows real-time currency conversion without delays.
- Support currencies. Make sure that whatever account you choose offers the currencies you frequently use, or expect to.
- Payment and withdrawal options. Look for an account that offers flexibility in withdrawing funds and making international payments. Pay particular attention to the fees involved here.
- Security. Any multicurrency bank account you choose should implement strong security measures to ensure your funds and personal data are kept safe from online threats.
- Integration with existing business tools. Look for a provider that integrates with the account systems, payment processors, and financial reporting tools you are already using.
